Course
Name: DERIVATIVES Course Code: 17JBS307
Number of credits: 4 Number of Hours: 40
Learning Outcomes:
a) To provide students with a conceptual and practical framework of the functioning of
Derivative Markets
b) To provide students with working knowledge about hedging, arbitraging and trading in
Derivative Markets
c) To provide students with the knowledge of Derivative Markets as an asset class for
investments.
Module I Derivatives – An Introduction 5 Hours
Learning Outcomes:
1a) Identify different types of Derivatives
1b) Able to differentiate products and participants
Introduction, Derivatives market in India, Factors influencing the growth of derivatives.
Derivatives – Derivatives products, Types of Derivatives - Participants in Derivative Market.
Module 2 Forwards and Futures 7.5 Hours
Learning Outcomes:
2a) Describe Future and Forward contracts
2b) Able to derive the future values of underling assets
2c) Identify the usage of index derivatives
Introduction - Forward Contract - Settlement of Forward Contract
Futures Contract- Specifications of Futures Contract - Open Interest – Terminologies of
Futures contracts. Difference between- Forward and Futures Contract- Pricing a Forward and
Futures Contract. Pricing of Futures.
Introduction to Index Futures and Stock Futures - Application of Index Futures- Hedging
through Index Futures. VAR, VIX, Monte Carlo Simulations
Module 3 Energy and Commodity Derivatives 7.5 Hours
Learning Outcomes:
3a) Describe commodity and energy contracts
3b) Able to understand use of crop derivatives
Benefits of Commodity Futures- Futures Contract on Commodities- Pricing Commodities
Futures- Hedging with Commodities Futures- Perfect and Imperfect Hedge- Basis & Basis.
Risk, Optimal Hedge Ratio. Regulation- trading and settlements – physical delivery of
commodities. Energy products, Weather derivatives, Livelihood Risk Management using Crop
Insurance; Insurance derivatives, Index Based Insurance are discussed
Module 4 Interest Rate Futures 5 Hours
Learning Outcomes: Examine the concept of Interest Rate
Introduction- Treasury Bond and Treasury Note Futures, Treasury Bills and Eurodollar Futures
– The product- Hedging - Speculation - Arbitrage. Forward Rate Agreement - Collar, Cap and
Floor
Module 5 Interest Rate and Currency Swaps 5 Hours
Learning Outcomes: Able to understand working of Interest and currency swap
Interest Rates and currency swaps- Introduction- Interest Rate Swaps- Features of Swap-
Need of Swap Intermediary- Applications of Swaps- Rationale for Swaps Comparative
Advantage- Types of Interest Rate Swap
Module 6 Options 10 Hours
Learning Outcomes:
6a) Able to distinguish between Options and other Derivatives products
6b) Able to calculate price of options k
6c) Construct Hedging strategies
Introduction- Terminology of options- Call option- Put Option- Moneyness of Options-
Differences between options and futures/ Forwards
PRICING
Binomial option pricing model- Factors affecting the options price- Black Scholes option
pricing model- Black and Scholes Assumption - Interpreting the Black Scholes model - Implied
volatility
APPLICATION
Hedging with Stock options- Hedging with Index options- Straddle – Long and Short- Strangle-
Long and Short- Straps and Strips- Bull Spread- Bear Spread- Butterfly Spread- Factors
affecting the Spread. Option Greeks.
Prescribed Text:
John C Hull , Introduction to futures and options markets, EEE
Derivatives Reference Texts:
John C Hull, Sankarshan Basu (2014). Introduction to Options, futures, and other derivatives,
Pearson
Robert W. Kolb, James A. Overdahl (2009). Futures, Options, and Swaps, Delhi, India, Wiley
India
